Peanut groups urge program changes

Paul L. Hollis Farm Press Editorial Staff | Oct 03, 2001

Now that the U.S. House Agriculture Committee has released its version of a reformed peanut program, industry groups are poring over details of the proposal and recommending changes for the final legislation.

The Georgia Peanut Producers Association recently hosted a discussion session with various commodity and industry groups and the field staffs of two congressmen to seek unity behind the committee's proposal and to urge changes to the bill as it moves to the full House and then to the Senate.

“This is a great starting point,” says Terry Pickle, chairman of the Georgia Peanut Producers Association (GPPA). “We need to work united with all groups to help the staffs get this bill passed immediately.”

Representatives with the GPPA, the Georgia-Florida-Alabama Peanut Association and the Peanut Buying Points Association agreed to urge the following changes in the committee's bill, either in the chairman's minor changes or in the Senate Agriculture Committee:

Target price

Support increasing the target price level for peanut from $480 per ton to $500 per ton and a market loan price for peanuts of $350 per ton.

Support increasing the quota buyout from 10 cents per pound for five years to 10 cents per pound for 10 years or 14 cents per pound for five years. The present level is not a fair and equitable payment to eliminate the farm asset.

In establishing new farm base, base credit should be given to produced peanuts and considered produced (those leased off the farm and produced). USDA/FSA has stated in the past that farmer would not be penalized if peanuts are leased off the farm.

Due to early transition and complete change of the quota peanut program caused by the U.S. Congress, losses caused by the transition for all three area associations should be covered by the Commodity Credit Corporation in 2001 and 2002 crops.

In establishing new farm base, farmers would be given the option on peanuts planted in the base period of 1981-85 or 1998-2001 (same base period as for other commodities).

All peanuts that are produced and sold would be graded by Federal-State Inspection Service. An unbiased third party is needed to determine the value of farmer stock peanuts.

Continue area associations to continue storage and dispersal of loan peanuts under contract with the Commodity Credit Corporation.

Payment to the quota owner would be shifted from Sept. 30 to Jan. 30 to better accommodate growers.

Historic changes

The House Agriculture Committee proposal would make historic changes to the federal peanut program. It calls for the elimination of the quota allotment system that has been in effect since the 1930s, and it replaces it with a marketing loan and counter-cyclical program.

The transition would make the peanut program much like other major crop programs, including corn, cotton and wheat. The new farm bill is proposed as a 10-year program expiring in 2011.

“Instead of a quota support price for domestic edible peanuts and an additional support price for exports, the new peanut program would provide a fixed, decoupled payment of $36 per ton to eligible producers, a counter-cyclical payment based on a $480 per ton target price and a marketing loan rate of $350 per ton,” explains Nathan Smith, University of Georgia Extension economist.

The current interpretation of the new peanut bill is that the counter-cyclical payment would be made to peanut producers on a farm with a peanut base, says Smith. Base acreage, he adds, is proposed as the average peanut acreage planted during 1998-2001.

Payment acreage

“The payment acreage would be 85 percent of the base acreage. The payment yield for peanuts would be the average yield during 1998-2001. A counter-cyclical payment would be triggered when the target price is greater than the sum of the average season price - 12 months - plus fixed, decoupled payment, or the national marketing loan rate plus the fixed, decoupled payment,” says Smith.

A non-recourse marketing loan or loan deficiency payment would be available to all peanut production on a farm, he continues. “To compensate for the loss of quota, holders of quota during the 2001 marketing year will receive equal payments of 10 cents per pound annually from 2002 to 2006. Seed and experimental quota are not included,” he says.

How quickly the House and Senate vote on a new farm bill is anybody's guess, says Smith. The timetable for approving new farm legislation is made even more complicated by the terrorist attacks in New York City and Washington, D.C., as lawmakers turn their attention to security matters.

The shrinking federal budget surplus also could figure prominently in farm bill negotiations. The Congressional Budget Office puts the tab of the proposed peanut program at $3.4 billion over 10 years.

Economists from Auburn University have crunched the numbers in an attempt to determine how costs and returns would differ under the proposed peanut program as compared to the current quota system program.

In making the comparisons, the economists note that much uncertainty exists as to how much discretion and how the secretary of agriculture would interpret various sections of the bill. Although comparing the two programs is like comparing “apples and oranges,” they say, some idea of the bottom line can be determined.

Under normal yields and with a world price of $132 per ton, the proposed changes would result in a reduction of net income over out-of-pocket costs by $76.55 per acre, say the economists. However, there is less of a loss over “total costs” than under the current program by $16.40. This positive difference is the result of not paying quota rent under the proposed program.

Net income comparison

Under a slightly higher world market price of $325 per ton, it is estimated that a producer would net $141.43 per acre less over out-of-pocket costs under the proposed bill. Looking at the net of all costs, the proposed changes would result in a loss of $45.59 per acre for the farmer.

To break even on all costs under the proposed peanut program, the world market price would have to be $573.87 per ton. Producing all quota peanuts under the current law would provide $311.57 per acre over out-of-pocket costs but still would lose $63.12 per acre over total costs.